Amazon and co threaten all business sectors

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Amazon breaking a savage horse - bronze by Jean-Jacques Feuchere, 1843
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It’s called squeezing the last drop out of the supply chain

From a standing start last year, with the Amazon Kindle Fire tablet, the King of Etail has already shivered many timbers in the tablet market and is already the second biggest player after Apple.

But there’s more to come this year, with Amazon showing that whatever it is you want, it’s there to sell you it – in the process obliterating the middle men and posing an even more urgent threat to practically every sector, including the diverse channels to market here in the UK.

Staying with tablets, for the time being, the word on the Asian street is that Amazon will introduce three more devices, putting the squeeze on the original design manufacturers (ODMs) and further cutting their margins on manufacturing. Amazon doesn’t make a profit on its Kindle Fire tablets – the device is a loss leader with profits expected from customers ordering other products, like, er books, ebooks and probably groceries and street furniture too.

Amazon has put out the specs of the new tablets due this year to tender – meaning that Taiwanese competitors will have to bid at the lowest price to win orders to make the kit. Hon Hai has joned the Amazon game – it was of course very much Apple’s partner when it launched the iPad.

It’s not just the Taiwanese companies making tablets that are being squeezed at both ends – notebooks are affected too. There are three big ODMs who between them make practically every notebook on the planet – Wistron, Quanta and Compal. They are now seeing gross margins hovering around five per cent. From being high end items, notebooks are now entering the commodity arena and it’s hard to see where this process is going to end. Essentially, the multinational players including HP, Dell, Toshiba, Apple and others have put all their eggs into the Taiwanese/Chinese basket. Asia remains the manufacturing hub for all things digital.

Just a quick glance at the Amazon UK website shows that it’s offering deals that puts it head to head against Argos, Debenhams, and PC World. The prices are cut throat – John Lewis has the Toshiba Satellite L755-1J5 at £469.95, way more than Amazon at £399.99 and Argos at £399.99. It’s no wonder that the manufacturers in Asia are being squeezed. And incidentally, Tesco is being squeezed too – it sells the same model at £469. Pricing kit is, of course, the ultimate nightmare for all members of the supply chain – some will cut 70 off the price of this particular model by slightly increasing prices on other, perhaps better selling notebooks. The ultimate model in the UK is Poundland – as far as we know it doesn’t sell notebooks, yet, you can buy the bird food at preferential rates but we guess it makes money by selling other items for more than you can get them if you shop at Tesco, at Sainsbury’s or at Waitrose. The product is “out of stock” when you go to the Toshiba UK site.

Everyone is waiting for a rash of Intel Ultrabooks and Intel is upping the ante by pushing the platform for all it is worth. Everyone is waiting for Windows 8 and Microsoft is upping the ante by pushing that platform for all its worth too. The word on the CeBIT strasse is that we will see Windows 8 products in August. The whole supply chain is suffering from disruption and you can only cut profits so much before something, everything, has to give.


Author: Mike Magee
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